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Jonathan Gray, recently named Blackstone’s president and COO, is now at the head of the line of the next generation of Blackstone management, the likely successor to co-founder and CEO Steve Schwarzman. Though the firm is best known for corporate private equity, Gray rose through the ranks of the real estate group, which has earned remarkable returns for fund investors.  Real estate is now bigger and generates more profit than private equity at Blackstone.

This Bloomberg BusinessWeek story explains why Gray is getting the nod.

King of Capital gives readers the inside story of how Gray beat out Vornado in a hard-fought contest to take over Equity Office Properties in 2007, and how his team sold off many of EOP’s office towers just before the real estate market crashed. EOP turned out to be one of Blackstone’s most profitable investments ever. It and Blackstone’s purchase of the Hilton hotel chain the same year — another Gray deal — earned $20 billion in profits for Blackstone’s funds.

 

 

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Blackstone announced this week that its GSO unit had raised $7 billion for a so-called “rescue debt” fund that will lend to distressed businesses, and $1.75 billion for an infrastructure secondaries fund that will buy stakes in other infrastructure funds from investor who want to sell out.

That was the good news. But The New York Times reported that Blackstone has missed fundraising deadlines for the $40 billion infrastructure fund it announced last year. Saudi Arabia’s massive Public Investment Fund agreed to match the contributions of other investors dollar-for-dollar up to $20 billion. But so far only two investors, the Pennsylvania Public School Employees’ Retirement System and the Parochial Employees’ Retirement System of Louisiana, have agreed to invest. They have committed $500 million and $75 million, respectively, the Times reported, citing data from Prequin.

 

Peterson had a remarkably varied career. The son of Greek immigrants who owned an all-night diner in Nebraska, he went on to become an advertising executive at McCann Erickson and then CEO of the Bell and Howell electronics company. He served briefly as Secretary of Commerce under Richard Nixon, then joined Lehman Brothers in 1973. When large trading losses nearly sank the bank, he was elevated to CEO and chairman and was credited with turning the firm around. He was elbowed out as chairman in the 1980s in a turf war with the bank’s traders.

He then teamed up with Steve Schwarzman, also from Lehman, to form Blackstone in 1985.

Although semi-retired when Blackstone went public in 2007, Peterson was still the second largest shareholder after Schwarzman. The IPO allowed Peterson to cash out much of his stake, and he netted $1.9 billion from shares he sold in the offering.

In his later years, he was a crusader on behalf of deficit reduction, and led the Council on Foreign Relations and the Peterson Foundation, which he founded.

King of Capital recounts the ups and downs of Peterson’s decade at Lehman and the contributions he made in Blackstone’s early years. Many years older than Schwarzman, he lent gravitas when Blackstone was a startup, and CEOs trusted him because he had been one at three very different companies. He was also known for his integrity … and for his frequent obliviousness to those around him, whether underlings or conniving rivals. As the book reports, he once was spotted leaving the office with a Post-It note on his hat saying, “Don’t forget your hat, Pete.”

 

Obituaries:

Bloomberg News

Washington Post

New York Times

That’s what The Washington Post dubbed Blackstone’s chairman and CEO. The story says that Schwarzman dined with the President in Palm Beach, Florida, the night after Trump announced trade sanctions targeting China. Schwarzman has attempted to persuade Trump to see the big picture of American-China relations and avoid confrontations with China, the story reports.

The story also reported that China’s sovereign wealth fund has sold off the last of its Blackstone shares. The fund bought an almost-10-percent stake in Blackstone shortly before the company went public in 2007.

17trumpceos2-master768Steve Schwarzman, who chaired President Trump’s Strategic and Policy Forum, formed to advise the White House on on economic issues, watched as the corporate chieftains on the panel bailed out this week over the President’s comments on the violence at a white-supremacist rally in Charlottesville, Virginia. One by one other CEOs were resigning. The New York Times reported:

As the group disintegrated, Stephen A. Schwarzman, the chief executive of the Blackstone Group, was kept in the loop. Mr. Schwarzman was one of Mr. Trump’s closest business confidants and the chairman of the policy forum, but he was also outraged by the president’s remarks.

On Tuesday evening, he called Jared Kushner, the president’s son-in-law and a White House adviser, to inform him that the policy forum was falling apart. At the same time, Mr. Schwarzman began drafting a statement about disbanding the group. 

That was preempted when the White House announced the end of the forum.

Another crucial player in the splintering of the panel, according to The Times, was ex-Blackstone partner Larry Fink, CEO of BlackRock:

On Wednesday morning, Laurence D. Fink, chief executive of BlackRock, the world’s largest asset manager, called Ms. Nooyi, Ms. Rometty, Ms. Barra and Douglas McMillon, the chief executive of Walmart.

Mr. Fink decided to step down after seeing the president’s remarks on Tuesday, and now encouraged other executives to join him.

Fink left Blackstone to form Blackrock in 1994 after a dispute over ownership and profits, as chronicled in chapter 10 of King of Capital.

Blackstone’s real estate arm is in exclusive talks to acquire a majority stake in the real estate portfolio of Spain’s failed Banco Popular, which was acquired (read: bailed out) by Santandar bank in June. Blackstone would reportedly take a 51% stake in the assets, which Santander estimates are worth about 30 billion euros ($35.2 billion). The portfolio includes properties as well as non-performing loans.

Details are in this Reuters story.

Apollo Global Management set a new record for private equity fundraising, amassing $24.6 billion in commitments for a new fund — topping the $21.7 billion record set by Blackstone in 2007, before the financial crisis. Apollo’s last fund, raised three years ago, topped out at $18.4 billion.

More details in the Bloomberg story.

The masters program in leadership that Steve Schwarzman has funded at Tsinghua University in Beijing, announced several years ago, finally got underway for real last month, with the first class entered. The program brings together foreign and Chinese students.

“This is the first time in 200 years where instead of the Chinese leaving to get educated, the best and brightest of the West are coming to China for no reason other than to just understand China,” the Wall Street Journal quoted Schwarzman as saying.

Joe Barratta, Blackstone’s head of corporate private equity, was interviewed by Bloomberg’s Jason Kelly about the state of private equity in this video.

Baratta was the partner responsible for Blackstone’s highly successful investment in Merlin Entertainments, which operates the London Eye, Legoland, Madame Tussaud’s and other attractions. Chapter 11 of the book explains how Blackstone helped the company expand to the point it is a rival to Disney in entertainment sites.

As anyone who works in Midtown Manhattan or the Upper East Side can testify, gridlock awaits the locals every year at this season when the United Nations General Assembly meets. Streets are blocked, and traffic is halted for motorcades. Prime ministers and presidents shuttle from place to place. Having a limo and driver doesn’t help in the struggle to get to the office. Hence Steve Schwarzman took the subway this week … and the firm tweeted a photo of the CEO on the 6 train, which runs down Lexington Avenue, by the back door to Blackstone’s office.